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Reference value of a property in Spain

The reference value of a property 🇪🇸🏠

What is the reference value of a property?

Law 11/2021, on measures for the prevention and fight against fraud, introduces a new concept that modifies the taxable base of two very important taxes in Spain. We are talking about the Transfer Tax and Stamp Duty as well as the Inheritance and Gift Tax. The cadastral reference value replaces the concept of “real value”, a concept that is equated to market value. 

The reference value is the one determined by law to be used as the taxable base in the liquidations on Property Transfer and Stamp Duty (ITP and AJD) and on Inheritance and Gift Tax (ISD).

The General Directorate of Cadastre calculates and assigns the value to a property. To calculate the reference value, the Cadastre is based on the market prices of the sales made before a Notary Public.

For this purpose, they prepare on a yearly basis a “map of values”. The reference value is determined according to that map.

In theory, the reference value should not exceed the market value, and a “reduction factor” is to be applied in such cases, but in practice, we often see that this value exceeds the market value. These “reduction factors” are coefficients that are applied in the calculation of the reference value to ensure that market values are not exceeded.

The issue, among other factors, arises because the updating of these value maps is done on an annual basis, being insufficient in this periodicity in the update due to the dynamism that exists in the real estate market. This means that the reference value in many cases is very different from the market price of the real estate.

If the market value is higher than the reference value, the regulation contemplates that the market value will be the one declared by the taxpayer.

In this sense, if you have bought a property for 150,000 euros and the established reference value is 120,000 euros, the ITP liquidation will have to be made for the higher value, in this case, the market value.

Notwithstanding the above, if you are not satisfied with the assigned reference value because it is detrimental to you when liquidating the ITP or the ISD tax, you can challenge this value in three ways.

  • Request that the self-assessment be rectified.
  • File an appeal for reconsideration (before the Tax Agency).
  • You could also file an economic-administrative claim against the tax administration’s liquidation. You’ll have to submit the claim before the regional Economic-Administrative Court.

Are the reference value and the cadastral value of a property the same thing?

No, they are not the same. They are two different concepts. Let us see the characteristics of each one. 

The cadastral value:

  • Uses different calculation methods than the reference value. Its calculation is given in collective valuation procedures that conclude in value assessments.
  • The cadastral value is a protected detail, it is not public and; 
  • You use the cadastral value is used for the calculation of the Real Estate Tax (IBI). 
  • It should be updated every 10 years although, in practice, it does not happen.

And the reference value:

  • It is calculated by the application of average value modules, based on the prices of all real estate sales and purchases made before a notary. Although, it takes for its configuration practically all the technical parameters of cadastral valuation. 
  • It will be the taxable base for some taxes such as Transfer Tax and Stamp Duty (ITP and AJD). Also the Inheritance and Gift Tax (ISD).
  • Does not affect or have any effect on the Real Estate Tax.
  • It is updated annually.
  • It is public information.

We recommend you consult the reference value before buying a property. From Luxton Legal, we can help you to make a detailed analysis of the legal implications.

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